Market report: Merrill begging bowl adds to banking woes

Merrill Lynch's impersonation of Oliver Twist in wanting some more cash did not go down well in the City.

In fact, it added to investors' worries about the deteriorating condition of the financial sector and how much longer the credit crunch will go on.

Only a few weeks ago, Merrill told shareholders it had sufficient funds to restore health to its balance sheet. But it now wants an extra £4 billion and is writing off a further £2.8 billion worth of dodgy loans.

That impressed investors on neither side of the Atlantic. It also prompted a fresh sell-off in UK banks, which themselves face a difficult few weeks during the interim reporting season.

Barclays was the biggest casualty, falling 21¾p to 317p, while losses were also seen in HBOS, down 12¼p at 275¼p — a whisker above the 275p level at which its £4 billion rights issue was pitched — and Royal Bank of Scotland, 6.25p off at 200p. Lloyds TSB, ¾p cheaper at 317½p, and bid target Alliance & Leicester, 6¼p better at 339¾p kick off the reporting season this week along with HBOS.

Record quarterly profits from BP went some way to underpinning the rest of the stock market early and inspired rises in other oil producers such as Tullow Oil, up 36p at 783½p, Cairn Energy, 106p ahead at 2795p, and Royal Dutch Shell, 30p better at 1848p. But profit-taking eventually saw its price retreat 9¾p to 509¾p.

This enabled the FTSE 100 index to stage a useful 79.7-point turnaround, rising 28.5 points to 5341.1 in thin trading. The wider FTSE 250 index also rallied from opening falls with a rise of 66 points at 8782.7, having touched a low for the day of 8593.9. Turnover levels remained at a low ebb, with many investors heading for the Sussex Downs to try their luck with the bookies at Glorious Goodwood rather than risk it on the stock market. This afternoon Wall Street was able to claw back some of yesterday's losses. The Dow rallied 123.5 to 11,254.6.

Vedanta Resources celebrated news of better-than-expected profits with a rise of 77p to 1929p. Morgan Stanley is sticking with its overweight rating on the shares and expects a speedy roll-out in aluminium and power, and a big increase in the volume of iron-ore production.

The news from Vedanta also lifted other miners and helped cushion losses among blue-chips. Antofagasta rose 17p to 557p, and Anglo American 96p to 2846p.

Eurasian Natural Resources Corporation (ENRC) rose 38p to 958p after it emerged that rival mining outfit Kazakhmys had bought a further 98.60 million shares, worth an estimated £614.2 million, from the Kazakh government in return for 80.3 million of its own shares.

The Kazakhs thus get 15% of Kazakhmys, whose stake in EN RC is at the same time raised from 14.59% to 22.24%, bought at an average price of 623p a share.

Shares of Lloyds' List publisher Informa were briefly suspended prior to the company announcing it had received a bid approach from a third party. The shares rose 13¾p to 437¾p. Informa is still in talks with Providence Equity, the Carlyle Group and Hellman & Friedman about an offer of 506p a share. It rejected an offer worth 630p a share from German publisher Springer Science & Business.

The bears felt the squeeze in British Airways, with the price rising 16½p to 251p, after briefly touched 256p following the announcement of merger talks with Spanish carrier Iberia. The fuel crisis prompted many bears to take short positions in the shares.

Housebuilder Persimmon, down 7p at 306p, has bounced back 40% since its low point earlier this month of 228p. Panmure Gordon reckons this may be a case of too far too soon. The broker has moved from hold to sell, but is sticking with its target of 225p .